Don't Go Global

 | Jan 11, 2012 | 8:00 AM EST
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Most U.S. indices are now trading above their 200-day moving averages and most have shot past their recent October highs. But I also like to keep an eye on at how the rest of the world's stock markets are faring.

Most of the time, global markets are outperforming the U.S. But that hasn't been the case over the last six months. If anything, the U.S market's edge is increasing.


First, let's look at a broad-based European ETF and within that the major 11 countries that use euro through the iShares MSCI EMU Index Fund (EZU). This ETF included all of the PIIGS: Portugal, Ireland, Italy, Greece and Spain..

The S&P 500 is strongly outperforming the European markets, particularly in the last three months.

European markets have clearly suffered as a result of the debt crisis. That said,  a big chunk of this underperformance is due to the weakness in the euro, which has collapsed since it recent peak of close to $1.38 in November. Today, it takes 7.7 % fewer dollars to buy, say, German stocks than it did on Nov. 8. It also means that any German stock you held since then is worth 7.7% less in U.S. dollar terms. No matter how you look at it, that's a heck of a headwind as U.S. dollar investor.

Emerging Markets

In most years, you can count on emerging markets to provide an extra boost of performance. But these fast-growth economies had a lousy 2012, with the MSCI Emerging Markets ETF (EEM) ending the year down about 25.57%.

Compare EEM's performance to the S&P 500 over the last six months and the U.S. markets outperformance is even more obvious.

As a group, the BRIC countries of Brazil, Russia, India and China fared even worse. Although I have not confirmed this independently, I've even read that as a group the much-vaunted BRICs underperformed Europe's PIIGS last year.


Finally, although it is part of the BRICs, let's look at China on its own. As much as the Chinese economy is the engine of global economic growth, its stock market as measured by the iShares FTSE China 25 Index Fund (FXI) has been a huge disappointment to investors over the past several years, including the  last six months.

The bottom line? For now, at least, don't worry about missing out on short-term opportunities in global markets. In the first quarter of 2012, the U.S. is the place to be.

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